A Different Way

to look at Life, Health, Business and Politics

Price Elasticity and the New Chiropractic Reality

Posted by Marietta chiropractor on August 24, 2012

I love Economics, often called “The Dismal Science”.  The short definition of Economics is that it’s the study of the allocation of scarce resources.  Like many things in Economics, scarcity is a relative terms.  Tow of the great caveats in Economics is “What if” and “it depends”.  In other words, Economics really is a study of behavior as it relates to stuff.  Stuff like money and the stuff we substitute for money.

Since entering the world of healthcare (specifically Chiropractic) over 20 years ago, I’ve watched with great interest the games providers play with Economics and how really naive the healthcare business is when it comes to the Dismal Science.  It’s really amazing, too, how ignorant lawmakers, regulators and administrators are about the economics of healthcare, too.  But, I’ll focus on Chiropractic in order to keep my interest high and this article short.

We all know about Economics’ Law of Supply and Demand.  We also understand that the greater the demand for a given product or service at a given level of supply, the higher the price of that good or service.  Further, we know that given a certain level of demand the quantity supplied can affect the price of a product or service.  There is an additional concept within the Law of Supply and Demand called “elasticity”, which basically is how widely supply and demand changes given changes in the price of a product or service.

OK.  Enough background.  What I want you to see are the dramatic changes facing the chiropractic profession because of the Law of Supply and Demand and the Price Elasticity of Demand for chiropractic services.  Over the last 30 years, chiropractors have benefited (?) from relative parity with other health professions when it came to 3rd party reimbursements like health insurance and Medicare.  Prior to that, chiropractors were paid directly by consumers of their service.  As a result, fees were relatively low.  After “insurance parity” chiropractic bills skyrocketed.  For the longest time, the chiropractors’ bills were rarely questioned.  And as long as patients were required to pay little or nothing out-of-pocket, they flocked to chiropractors’ offices and everybody was happy.

Eventually, the profession began to choke the goose with the golden egg.  Managed care came on the scene and the scrutiny of chiropractic bills began.  Deductibles and copays started increasing.  In other words, patients were being required to take cash out of their pocket to pay for a portion of their chiropractic care.  At that time, we began to see serious competition among chiropractors themselves but also with physical therapists and MDs..  It seems that MDs could bill greater amounts with fewer out-of-pocket requirements than the chiropractors.

Chiropractors found that even the slightest increase in out-of-pocket expense caused a drop-off in consumer demand for chiropractic services.  So, the natural response was for the chiropractor to waive out-of-pocket costs or NOPE, no out of pocket expense.  Problem was, that tactic was deemed illegal under fraud statutes. Chiropractors started going to jail NOT in righteous protests but for fraud.

The next response by the profession was “exhaustion of benefits”.  Under this approach, a care plan would be rendered based partly on what a person’s insurance coverage was.  The amount covered would be subtracted from the calculated cost of the care plan at the doctor’s per visit rate (including covered therapy modalities) and the balance either paid up front with a discount or spread over the life of the care plan.  This approach has come under great scrutiny by both legal and regulatory authorities.  Hopefully, this practice is almost gone.

But, the history of chiropractic economics has shown that the Price Elasticity of Demand is very significant.  this just means that even though chiropractors had been paid very well for at least a couple of decades, that income was the result of creative billing and lax  oversight by 3rd party payors and NOT because they competed directly for consumers on a cash basis.  Over that time, chiropractors began to equate their value with their gross income instead of the REAL demand for chiropractic services by the cash paying customer.  Many of those same practitioners have been teaching chiropractic students over the last decade or two that there is no price competition and that they should expect (even demand) a high level of reimbursement.

The sad reality is that insurance coverage for chiropractic services is almost gone in America.  Chiropractors are now in an environment where they must compete with each other for clients but with alternatives that may still be receiving some 3rd party payments while the DC is not.  In other words, there a lots of chiropractors charging rates based on what used to be paid by someone OTHER than their patient.  And as we all know, no one spends their own money like they’d spend someone else’s.

So, what we have in chiropractic now are thousands of recently graduated chiropractors who entered school to become a doctor who didn’t have to work hard while making lots of money entering a market where there is little or no 3rd party pay and an economy where people are squeezing every penny out of every dime just to make ends meet.

The new economic realities of the chiropractic profession are that students owe at least twice (in student loans) what they can expect to earn in a year.  The average income for chiropractors is falling as is the average fee for service.

Today’s chiropractor is ill-equipped to face the new market realities.  He/she must become excellent marketers, well versed in public speaking, one-on-one selling, social and business networking and business management.  They will work in smaller offices with lower overhead, smaller staff, lower incomes and lower fees.  The competition for the old reliable NMS conditions will be hard to wrench from the hands of orthopedists and physical therapists.  They will be forced to improvise their approach or seek other careers, like teaching Biology at the local middle or high school.  Not exactly what they borrowed $200,000 to end up doing.

The new reality is that chiropractors will almost be forced to narrow their scope like chiropractors of old, offer fee systems that are reasonable for most individuals and families to pay out of pocket and to sell chiropractic like BJ Palmer did in his time and Sid Williams in his.  As for me, I am glad to see this change coming.  But, I don’t think my profession and its system of learning and regulation are.  I guess time will tell.

 

 

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3 Responses to “Price Elasticity and the New Chiropractic Reality”

  1. Drgking said

    Although your article has valid points, cheapening chiropractic will not fill your office with patients and will burn you out! DD Palmer charged what would be equivalent to $51 a visit in today’s world. You want to talk economics, make sure you tell the whole truth Tim.

  2. You are right on target Doc. I have been practicing 28 years and saw this coming since the early 90’s. I wish I had prepared better for the inevitable changes! I am now slowly adapting and think I have a chance of surviving due to a pretty loyal patient base. I feel bad for the bright eyed, bushy tailed young doctors who will likely never get a good start unless they are very sharp, aggressive marketers. Even then, the odds are stacked against them.

    Politics played a huge part in the professions’ difficulties. The Medical lobby is strong and it fostered PT to help suppress Chiropractic (my opinion). You never saw the MD’s blocking the new Dr of PT degrees, did you? Chiropractic Schools enthusiastically helped to undermine the profession as well. To this day they continue to over-sell the profession to unwitting and impressionable kids. Over-saturation did not grow the profession. It undermined the doctor’s ability to thrive.

    That said, I believe a good living can still be earned ethically in the profession, with hard work and dedication. A lot of good can be done for patients as well. In my nearly 30 years of practice I have seen some truly amazing recoveries with Chiropractic Care, where medicine had failed. No MD can match my results with back pain!

    The profession is worth saving. It can do a great deal of good in the world. It just needs to evolve and find a niche in the new world of wellness care (not simply selling vitamins!). Marketing should not hype the potential results of Chiropractic Care. The new consumer public is turned off by exaggerated claims, as are us seasoned doctors. We have something great to offer. It would be a shame if it were to disappear from society.

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